Auctioning mechanisms for dark order block trading

ABSTRACT

Auctioning mechanisms adapted to improve the integrity of dark order block trading is provided.

TECHNICAL FIELD

Embodiments of the disclosure relate generally to financial tradingsystems and, more specifically, to auctioning mechanisms for dark orderblock trading.

BACKGROUND

In the finance field, dark liquidity is commonly understood to betrading volume created by orders not openly available to the public. Abulk of dark liquidity is represented by block orders facilitated awayfrom central exchanges.

Dark order block trades allow access to a good source of liquidity, witha growing percentage of the total market volume trading via crossingnetworks and exchange hidden orders. A recognized advantage of darkorder block trades is it can allow for buying and selling of largeblocks of securities without the need to identify the side, price orsize of trades or the identity of market participants engaging in suchtrades.

Primary concerns associated with dark order block trades are informationleakage and gaming, both of which can have a significant impact on themarket and result in degradation of liquidity quality. To maintain theintegrity of dark order block trades and avoid significant marketimpact, controls must be in place to reduce the likelihood ofinformation leakage and to minimize the potential for gaming.

Accordingly, there is a need for auctioning mechanisms adapted toimprove the integrity of dark order block trading.

SUMMARY

The present disclosure provides systems, methods and apparatus forconducting an auction that comprises, for example, automaticallycreating an auction based on monitored activity in a financial markethaving a minimum fill size, transmitting a notification of the auctionto a plurality of market participants, building an order book for theauction based on firm limit orders received from the plurality of marketparticipants, identifying a reference price for conducting the auctionwhere the reference price is calculated as a midpoint of bid and askprices in the financial market, and filling qualifying orders receivedfrom the plurality of market participants based on the reference price.

BRIEF DESCRIPTION OF THE DRAWINGS

The present disclosure is illustrated by way of example, and not by wayof limitation, and will become apparent upon consideration of thefollowing detailed description, taken in conjunction with theaccompanying drawings, in which like reference characters refer to likeparts throughout, and in which:

FIG. 1 is a block diagram illustrating an exemplary computer network inwhich embodiments of the present disclosure may operate.

FIGS. 2A and 2B are flow diagrams illustrating an embodiment of a methodfor conducting an auction for block order trading.

FIGS. 3A and 3B illustrate, respectively, an order book comprisingorders received from market participants, excluding orders competingwith an auction initiator, and a corresponding order book comprising theresulting transaction.

FIG. 4 is a flow diagram illustrating an embodiment of a method forconducting a partial book auction corresponding to the order booksillustrated in FIG. 3A and FIG. 3B.

FIGS. 5A-5C illustrate, respectively, an order book comprising ordersreceived from market participants, including orders competing with anauction initiator, a corresponding order book comprising the resultingtransaction in favor a competing market participant, and a correspondingorder book comprising the resulting transaction in favor of the auctioninitiator.

FIG. 6 is a flow diagram illustrating an embodiment of a method forconducting a full book auction corresponding to the order booksillustrated in FIGS. 5A-5C.

FIGS. 7A-7C are flow diagrams illustrating an embodiment of a method forconducting an auction at a pre-determined time, absent a marketparticipant acting as an auction initiator, utilizing a reference pricein a primary market.

FIGS. 8A-8D illustrate an order book comprising orders received frommarket participants and the corresponding distribution of shares inaccordance with the method illustrated by the flow diagrams of FIGS.7A-7C.

FIG. 9 illustrates a diagrammatic representation of a machine in theexemplary form of a computer system.

DETAILED DESCRIPTION

Embodiments of the disclosure provide methods for conducting auctionssuitable for dark order block trading.

In the following description, numerous details are set forth. It will beapparent, however, to one skilled in the art, that the presentdisclosure may be practiced without these specific details. In someinstances, well-known structures and devices are shown in block diagramform, rather than in detail, in order to avoid obscuring the presentdisclosure.

Some portions of the detailed descriptions are presented in terms ofalgorithms and symbolic representations of operations on data bitswithin a computer memory. These algorithmic descriptions andrepresentations are the means used by those skilled in the dataprocessing arts to most effectively convey the substance of their workto others skilled in the art. An algorithm is here, and generally,conceived to be a self-consistent sequence of steps leading to a desiredresult. The steps are those requiring physical manipulations of physicalquantities. Usually, though not necessarily, these quantities take theform of electrical or magnetic signals capable of being stored,transferred, combined, compared, and otherwise manipulated. It hasproven convenient at times, principally for reasons of common usage, torefer to these signals as bits, values, elements, symbols, characters,terms, numbers, or the like.

It should be borne in mind, however, that all of these and similar termsare to be associated with the appropriate physical quantities and aremerely convenient labels applied to these quantities. Unlessspecifically stated otherwise, as apparent from the above discussion, itis appreciated that throughout the description, discussions utilizingterms such as “receiving”, “determining”, “generating”, “transmitting”,“building”, “identifying”, “selecting”, “executing”, “filling”,“canceling”, “processing”, or the like, refer to the action andprocesses of a computer system, or similar electronic computing device,that manipulates and transforms data represented as physical(electronic) quantities within the computer system's registers andmemories into other data similarly represented as physical quantitieswithin the computer system memories or registers or other suchinformation storage, transmission or display devices.

The present disclosure also relate to an apparatus for performing theoperations herein. This apparatus may be specially constructed for therequired purposes or it may comprise a general purpose computerselectively activated or reconfigured by a computer program stored inthe computer. Such a computer program may be stored in a computerreadable storage medium, such as, but not limited to, any type of diskincluding floppy disks, optical disks, CD-ROMs and magnetic-opticaldisks, read-only memories (ROMs), random access memories (RAMs), EPROMs,EEPROMs, magnetic or optical cards, flash memory devices includinguniversal serial bus (USB) storage devices (e.g., USB key devices) orany type of media suitable for storing electronic instructions, each ofwhich may be coupled to a computer system bus.

The algorithms and displays presented herein are not inherently relatedto any particular computer or other apparatus. Various general purposesystems may be used with programs in accordance with the teachingsherein or it may prove convenient to construct more specializedapparatus to perform the required method steps. The required structurefor a variety of these systems will be apparent from the descriptionabove. In addition, the present disclosure is not described withreference to any particular programming language. It will be appreciatedthat a variety of programming languages may be used to implement theteachings of the disclosure as described herein.

The present disclosure may be provided as a computer program product, orsoftware, that may include a machine-readable medium having storedthereon instructions, which may be used to program a computer system (orother electronic devices) to perform a process according to the presentdisclosure. A machine-readable medium includes any mechanism for storingor transmitting information in a form readable by a machine (e.g., acomputer). For example, a machine-readable (e.g., computer-readable)medium includes a machine (e.g., a computer) readable storage medium(e.g., read only memory (“ROM”), random access memory (“RAM”), magneticdisk storage media, optical storage media, flash memory devices, etc.),a machine (e.g., computer) readable transmission medium (non-propagatingelectrical, optical, or acoustical signals), etc.

FIG. 1 is a block diagram illustrating an exemplary computer network 100in which embodiments of the present disclosure may operate. Referring toFIG. 1, computer network 100 may be comprised of at least one tradingplatform 110, an initiating market participant 102 (also referred toherein as “auction initiator”) and a plurality of market participants122, which may be collectively referred to herein as exchange members120. In one embodiment, initiating market participant 102 and each ofmarket participants 122 may be represented by a computing device (notshown) communicatively coupled to and programmed to access tradingplatform 110 via a network 130. Network 130 may be a private network(e.g., a local area network (LAN), wide area network (WAN), intranet,etc.) or a public network (e.g., the Internet).

Trading platform 110 may be comprised of one or more modules configuredto process block orders (buy and sell) received from initiating marketparticipant 102 and market participants 122. For example, tradingplatform 110 may be comprised of an order management module 112 and anorder matching module 114.

In one embodiment, order management module 112 may be configured tomanage all aspects of initiating and conducting an auction in responseto receiving a firm limit order from initiating market participant 102.Order management module 112 may, for example, be configured to generatea request for auction (RFA), determine the status of other pendingauctions, execute various determinations to confirm whetherpredetermined criteria required for participating in an auction aresatisfied, identify and communicate auction parameters to select marketparticipants 122 and build an order book for conducting an auction.

In one embodiment, order matching module 114 may be configured to matchorders provided in an order book built for conducting an auctioninitiated by order management module 112 in response to receiving a firmlimit order from initiating market participant 102. Order matchingmodule 114 may, for example, be configured to select an auction pricebased on orders provided in an order book, determine parameters and/orrestrictions associated with the orders provided in the order book, andfill qualifying orders in accordance with the same.

Those skilled in the art will appreciate that trading platform 110 maybe configured with more or less modules to conduct the auctioningmethods described herein with reference to FIGS. 2A-2B, 4, 6 and 7A-7C.As illustrated in FIGS. 2A-2B, 4, 6 and 7A-7C, each of correspondingmethods 200, 400, 600 and 700 may be performed by processing logic thatmay comprise hardware (e.g., circuitry, dedicated logic, programmablelogic, microcode, etc.), software (such as instructions run on aprocessing device), or a combination thereof. In one embodiment, methods200, 400, 600 and 700 may be performed by one or more processingcomponents associated with modules 112 and 114 of trading platform 110.

FIGS. 2A and 2B are flow diagrams illustrating a method 200 forconducting an auction for block order trading, according to anembodiment of the disclosure. Referring to FIGS. 2A and 2B, method 200may be initiated upon receiving, at step 202, a firm limit order from anauction initiator. The firm limit offer received may be processed, forexample, by order management module 112 of trading platform 110.

Upon receiving a firm limit order, an initial determination may be made,at step 204, to ascertain whether another auction is already inprogress. For example, a determination may be made to ascertain if anauction in progress is related to an equity for which the auctioninitiator has submitted a firm limit order. If a related auction isdetermined to be in progress, then the firm limit order received fromthe auction initiator may be rejected, at step 206. A rejectionnotification may be generated and transmitted to the auction initiator,wherein the auction initiator may be notified of the rejected order andinformed of the ongoing related auction. In providing the rejectionnotification, the auction initiator may be permitted to participate inthe ongoing related auction. For example, the notification generated andtransmitted to the auction initiator may be comprised of informationcommunicated in an RFA associated with the ongoing related auction.

If a determination is made that a related auction is not already inprogress, then the firm limit order received from the auction initiatormay be subject to an additional determination, at step 208, to ascertainif order parameters (e.g., order size, auction time, etc.) forinitiating an auction are satisfied. For example, to initiate an auctionon trading platform 110, a minimum order size of 10,000,000 units may berequired. If order parameters submitted in the firm limit order are notpermitted, then the order may be rejected, at step 206, and communicatedto the auction initiator.

If the determinations, at steps 204 and 208, are satisfied in favor ofthe firm limit order received from the auction initiator, then acorresponding RFA may be generated, at step 210. Depending on desiredconfiguration parameters, the RFA may be generated with a limited numberof order parameters. For example, in one embodiment, order managementmodule 112 of trading platform 110 may generate a RFA comprising onlythe order size and time of the auction, and omit pricing informationdesired by the auction initiator. In another embodiment, ordermanagement module 112 of trading platform 110 may generate a RFA with noorder parameters at all—e.g., in orders where a reference price is used(described in further detail herein).

After the RFA is generated, it may be transmitted, at step 212, toselect market participants. Various criteria may be used to determinewhich market participants may receive the RFA. In one embodiment, marketparticipants 122 already showing liquidity in a particular order bookmay be selected to receive the RFA. In another embodiment, marketparticipants 122 prepared to bring liquidity may be selected to receivethe RFA. In yet another embodiment, a combination of those marketparticipants 122 already showing liquidity in a particular order bookand those market participants 122 prepared to bring liquidity may beselected to receive the RFA.

It should be noted that any market participants 122 classified inexchange members 120 may send a dark block order during a pre-auctionphase, even if the market participant was not a direct recipient of theRFA transmitted by order management module 112 of trading platform 110.Objective access criteria, as may be defined by order management module112 and subject to local regulations, may be used in determining whichmarket participants receive the RFA or are permitted to engage in thepre-auction phase.

Block orders from market participants are received, at step 214, and acorresponding order book comprising the block orders may be built foruse in the auction. Similar to the firm limit order received from anauction initiator, block orders received from market participants,whether in direct or indirect response to the RFA, may be subject to oneor more determinations to ascertain whether or not they are qualified toparticipate in the auction.

A first determination may be made, at step 216, to ascertain whetherblock orders received from market participants wishing to participate inthe auction satisfy a predetermined minimum order size. If a minimumorder size is not satisfied, the block order received from a marketparticipant is rejected, at step 218. If the minimum order size issatisfied, then the block order received from a market participant mayundergo a second determination, at step 220, to ascertain whether or notthe block order was timely submitted for participation in the auction.If the time for auction has not yet been reached (also referred to asthe “pre-auction phase”), block orders may continue to be received frommarket participants and entered into the corresponding order book.

In one embodiment, the time for auction may be a user-defined timeperiod provided by the auction initiator when a firm limit order issubmitted and received at order management module 112 of tradingplatform 110. In another embodiment, to preventing gaming by marketparticipants, a random timer may be employed. The random timer mayrandomly adjust a user-defined time period provided by the auctioninitiator. More specifically, the user-defined time period provided bythe auction initiator may be used as input in any one of a plurality offunctions of the random timer. For instance, one function of the randomtimer may be configured to add or subtract a period of time (e.g., +/−15seconds) from the user-defined time period provided by the auctioninitiator. For example, the auction initiator may provide for a timeperiod of two (2) minutes. Using the aforementioned function of therandom timer, which is configured to adjust by plus (+) or minus (−)fifteen (15) seconds, the actual time for auction used may be two (2)minutes and fifteen (15) seconds or one (1) minute and forty-five (45)seconds.

Upon determining, at step 220, that the auction time has been reached,block orders from market participants are rejected, at step 218, and anauction price may be determined, at step 222, based on prices associatedwith the orders received from market participants, as provided in theorder book. In another embodiment, prices for orders received frommarket participants may not be needed for ascertaining the auctionprice. Rather, if available, a reference price may be used. A referenceprice may be an external price that may be determined based on marketdata retrieved from one or more markets. Additionally, minimum andmaximum pricing thresholds may be set around the reference price toprevent gaming influencing the reference price in the main market place.The minimum and maximum pricing thresholds may be user-defined valuesprovided by the auction initiator or may be defined automatically by thesystem based on the reference price observed at the time the auctioninitiator submits the RFA.

Once the auction price is determined, qualifying orders in the orderbook may be filled, at step 224, and any remaining unexecuted orders inthe order book may be canceled, at step 226. Determination of theauction price and filling qualifying orders are discussed in furtherdetail with reference to the process flows illustrated in FIGS. 4 and 6.

FIG. 3A illustrates an order book associated with an RFA initiated by abuy order received from an auction initiator, the order book comprisingonly corresponding sell orders received from market participants, FIG.3B illustrates an order book comprising the resulting transaction at thetime of auction based on qualifying sell orders received from the marketparticipants, as provided in the order book illustrated in FIG. 3A.

Referring to the order book illustrated in FIG. 3A, an auction initiator(“Buy Side A”) may submit an order to buy 10,000,000 units of a security(e.g., bond) at a price of $101.00 per unit. Upon receiving the orderfrom the auction initiator, an RFA is generated and orders may bereceived from market participants (“Dealer B”, “Dealer C” and “DealerD”) in response to the RFA. For example, as provided in the order bookillustrated in FIG. 3A, a sell order of 7,000,000 units of the securityis received from market participant “Dealer B” at a price of 100.55 perunit, a sell order of 5,000,000 units of the security is received frommarket participant “Dealer C” at a price of 100.75 per unit, and a sellorder of 15,000,000 units of the security is received from marketparticipant “Dealer D” at a price of 101.20 per unit. Orders receivedthe market participants in response to the RFA may be sorted by orderprice, order size, order time or a combination thereof. As illustratedin FIG. 3A, orders received from the market participants are sorted inthe order book by at least the order price.

FIG. 4 is a flow diagram illustrating a method 400 for conducting apartial book auction corresponding to the order book illustrated in FIG.3A. A partial book auction may only take into consideration ordersreceived from the market participants in response to an RFA, excludingcompeting orders—i.e., a market participant submitting an order thatcompetes with the firm limit order submitted by the auction initiator.

Referring to FIG. 4, method 400 may be initiated upon receiving, at step402, a firm limit order from an auction initiator. In one embodiment,the firm limit order received from an auction initiator may be“dark”—i.e., not visible to a broader market. For example, marketparticipants may only receive information regarding the order size andauction time identified in the firm limit order submitted by the auctioninitiator. Advantages of this approach may be to encourage marketparticipants to make more aggressive orders, while at the same timeminimizing occurrences of price manipulations. In another embodiment,the auction initiator may choose to allow more information associatedwith the firm limit order to be revealed so as to solicit the interestof more, or a particular group of, market participants.

Once the firm limit order is received, and made subject to qualifyingdeterminations (as previously described in conjunction with FIGS.2A-2B), an RFA may be generated, at step 404, to be transmitted, at step406, to select market participants. As illustrated in FIG. 3A, an orderbook comprising the auction initiator's firm limit order and ordersreceived from market participants in response to the RFA may be built,at step 408, and may continue to receive, at step 412, orders frommarket participants (excluding competing orders) until a determinationis made, at step 410, that the auction time has been reached.

Upon reaching the auction time, as may be designated by the auctioninitiator at the time of submitting the firm limit order, an auctionprice for conducting the auction may be determined. Determining theauction price may take into consideration the orders received frommarket participants, excluding orders competing against the auctioninitiator, as sorted in the order book of FIG. 3A. The auction priceselected, at step 414, may be determined based on the least aggressiveprice permitting maximum volume execution.

For example, referring to the order book in FIG. 3A, sell orders arereceived from market participant “Dealer B” for 7,000,000 units at$100.55 per unit, from market participant “Dealer C” for 5,000,000 unitsat $100.75 per unit, and from market participant “Dealer D” for15,000,000 units at $101.20 per unit. The following table reflects theresulting buy-side volume and sell-side volume for each of the sellorder prices received from market participants “Dealer B”, “Dealer C”and “Dealer D”.

BUY-SIDE SELL-SIDE VOLUME PRICE VOLUME -0- $101.20 27M 10M $100.75 12M10M $100.55  7M

The sell price of $101.20 associated with the sell order price submittedby market participant “Dealer D” exceeds the permissible buy price thatthe auction initiator (“Buy Side A”) is willing to pay and, therefore,the sell order submitted by market participant “Dealer D” is deemed as anon-qualifying order and is not considered in determining the auctionprice. In view of the foregoing comparison of the buy-side and sell-sidevolume yielded for the sell orders remaining, the least aggressive pricepermitting maximum volume execution is $100.75.

After the auction price of $100.75 is selected, qualifying orders arefilled, at step 416, and any remaining unfilled orders are canceled.Using qualifying sell orders from market participants sorted in theorder book, as illustrated in FIG. 3A, the resulting transaction orderbook, as illustrated in FIG. 3B, shows sell orders associated withmarket participant “Dealer B” and market participant “Dealer C” filledat the selected auction price of $100.75.

FIG. 5A illustrates an order book associated with an RFA initiated by abuy order received from an auction initiator, the order book comprisingcompeting buy orders and corresponding sell orders received from marketparticipants. FIG. 5B illustrates an order book comprising the resultingtransaction at the time of auction based on qualifying buy and sellorders received from the market participants, as provided in the orderbook illustrated in FIG. 5A, favoring the highest competing orderreceived from a market participant. FIG. 5C illustrates an order bookcomprising the resulting transaction at the time of auction based onqualifying buy and sell orders received from the market participants, asprovided in the order book illustrated in FIG. 5A, favoring the auctioninitiator.

Referring to the order book illustrated in FIG. 5A, an auction initiator(“Buy Side A”) may submit an order to buy 10,000,000 units of a security(e.g., bond) at a price of $101.00 per unit. Upon receiving the orderfrom the auction initiator, an RFA is generated and orders may bereceived from market participants (“Dealer B”, “Dealer C” and “DealerD”) in response to the RFA. For example, as provided in the order bookillustrated in FIG. 5A, a sell order of 7,000,000 units of the securityis received from market participant “Dealer B” at a price of $100.55 perunit, a sell order of 5,000,000 units of the security is received frommarket participant “Dealer C” at a price of $100.75 per unit, and a sellorder of 15,000,000 units of the security is received from marketparticipant “Dealer D” at a price of $ 101.20 per unit.

In addition to the sell orders received from market participants,competing buy orders received after generation of the RFA, but prior tothe designated auction time, may be considered and entered into theorder book. For example, as provided in the order book illustrated inFIG. 5A, market participant “Buy Side B” may submit a competing buyorder of 12,000,000 units of the security at a price of $101.20 perunit, market participant “Dealer B” may submit a competing buy order of7,000,000 units of the security at a price of $100.35 per unit, andmarket participant “Dealer C” may submit a competing buy order of5,000,000 units of the security at a price of $100.30 per unit.

FIG. 6 is a flow diagram illustrating a method 600 for conducting a fullbook auction corresponding to the order book illustrated in FIG. 5A. Afull book auction may take into consideration all orders received fromthe market participants in response to an RFA, including competingorders—i.e., a market participant submitting an order that competes withthe firm limit order submitted by the auction initiator.

Initial steps of method 600 are similar to those described inconjunction with the partial book auction in method 400 of FIG. 4.Referring to FIG. 6, method 600 may be initiated upon receiving, at step602, a firm limit order from an auction initiator. Once the firm limitorder is received, and made subject to qualifying determinations (aspreviously described in conjunction with FIGS. 2A-2B), an RFA may begenerated, at step 604, to be transmitted, at step 606, to select marketparticipants. As illustrated in FIG. 5A, an order book comprising theauction initiator's firm limit order and orders received from marketparticipants in response to the RFA may be built, at step 608, and maycontinue to receive, at step 612, orders from market participants(including competing orders) until a determination is made, at step 610,that the auction time has been reached.

Upon reaching the auction time, an auction price for conducting theauction may be determined. Unlike the partial book auction of method400, the full book auction of method 600 employs a different process fordetermining the auction price. Determining the auction price in the fullbook auction may take into consideration all orders (i.e., sell ordersin response to the RFA and competing buy orders) received from marketparticipants, as sorted in the order book of FIG. 5A. The auction priceselected, at step 614, may be determined based on the price permittingmaximum volume execution.

For example, referring to the order book in FIG. 5A, sell orders arereceived from market participant “Dealer B” for 7,000,000 units at$100.55 per unit, from market participant “Dealer C” for 5,000,000 unitsat $100.75 per unit, and from market participant “Dealer D” for15,000,000 units at $101.20 per unit. Additionally, buy orders arereceived from competing market participant “Buy side B” for 12,000,000units at $101.20, competing market participant “Dealer B” for 7,000,000units at a price of $100.35 per unit, and competing market participant“Dealer C” for 5,000,000 units at a price of $100.30 per unit. Thefollowing table reflects the resulting buy-side volume and sell-sidevolume for each of the sell order and buy order prices received from allmarket participants “Dealer B”, “Dealer C”, “Dealer D”, “Buy side A” and“Buy side B”, irrespective of whether or not a market participant iscompeting with the auction initiator.

BUY-SIDE SELL-SIDE VOLUME PRICE VOLUME 12M $101.20 27M 22M $101.00 12M22M $100.75 12M 22M $100.55  7M 29M $100.35 -0- 34M $100.30 -0-

The buy prices of $100.35 and $100.30 associated with, respectively, thecompeting buy orders submitted by market participant “Dealer B” andmarket participant “Dealer C” result in zero sell-side volume and,therefore, these buy orders are deemed as non-qualifying orders and arenot considered in determining the auction price. In view of theforegoing comparison of the buy-side volume and sell-side volume yieldedfor the orders remaining, the price permitting maximum volume executionis $101.00. When more than one price yields the same maximum volume, thehighest price may be selected.

After the auction price of $101.00 is selected, a determination is made,at step 616, as to whether configuration parameters employed by ordermatching module 114 of trading platform 110 are set to give the auctioninitiator preference in filling orders. If no preference is given to theauction initiator, then qualifying orders may be filled, at step 618 a,in favor of a competing market participant. Using qualifying orders frommarket participants sorted in the order book, as illustrated in FIG. 5A,the resulting transaction order book, as illustrated in FIG. 5B, showssell orders associated with market participant “Dealer B” and marketparticipant “Dealer C” filled at the selected auction price of $101.00in favor of competing market participant “Buy side B”, wherein competingmarket participant “Buy side B” is favored due to their buy order sizebeing larger than the buy order size of auction initiator “Buy side A”.

In another embodiment, where no preference is given to the auctioninitiator, competing market participant “Buy side B” may be favored dueto their buy order price being more aggressive (i.e., higher price) thanthe buy order price of auction initiator “Buy side A”. In yet anotherembodiment, where a reference price is used, rather than pricesassociated with orders received from market participants, the size andtime (instead of the price and time) of orders received may be used todetermine priority in filling orders, wherein orders may be filled infavor of a market participant having the largest order and, in thosecases where order size is the same between two or more marketparticipants, in favor of the market participant first in time.

If preference is given to the auction initiator, then qualifying ordersmay be filled, at step 618 b, in favor of the auction initiator first.Using qualifying orders from market participants sorted in the orderbook, as illustrated in FIG. 5A, the resulting transaction order book,as illustrated in FIG. 5C, shows sell orders associated with marketparticipant “Dealer B” and market participant “Dealer C” filled at theselected auction price of $101.00 first to auction initiator “Buy sideA” and then with remaining units to competing market participant “Buyside B”. In this embodiment, since preference is given to auctioninitiator “Buy side A”, competing market participant “Buy Side B” onlyreceives a partial execution on the competing buy order even though thebuy order received from competing market participant “Buy Side B” islarger than the buy order received from auction initiator “Buy side A”.

In another embodiment, an auction may not be initiated by a firm limitorder received from an auction initiator, but rather may be initiatedautomatically by trading platform 110 at a pre-determined time (e.g.,where a desired level of liquidity is detected to be available in themarket) and conducted based on a reference price dictated in the primarymarket. Allowing an auction to be organized in this manner may provideyet an even higher degree of protection against informationleakage—information about the auction other than the time forparticipating, which may be randomized (as previously discussed), is notnecessarily available to market participants. FIGS. 7A-7C are flowdiagrams illustrating an embodiment of a method 700 for conducting anauction at a predetermined time, absent a market participant acting asan auction initiator, utilizing a reference price in a primary market.The auction conducted at the pre-determined time may only take intoconsideration the reference price, which may be calculated as themidpoint bid/ask price in the primary market.

Referring to FIGS. 7A-7C, method 700 may be initiated upon execution ofan action or instruction by trading platform 110 to create, at step 702,an auction at a predetermined time. A minimum order entry size andminimum fill size for the auction may be pre-defined, wherein ordersfailing to meet the minimum order entry size are deemed ineligible andare not permitted to participate in the auction. By way of example andfor purposes of illustrating the calculations and corresponding sharedistributions that follow, the minimum order entry size may be 50,000and the minimum fill size (MFS) may be 20,000.

A notification may be transmitted, at step 704, announcing creation ofthe auction to market participants. As firm limit orders are received,at step 706, from market participants, an order book for the auction isbuilt, at step 708. Until a determination is made, at step 710, that anauction time has been reached, orders from market participants continueto be received, at step 706, and entered, at step 708, into the orderbook. When the auction time is reached, the reference price may becalculated, at step 712, and ineligible orders may be removed, at step714, from the order book. An order may be deemed ineligible, forexample, if the limit price associated with a sell order is higher thana reference price or if the limit price associated with a buy order islower than a reference price.

FIG. 8A illustrates an order book that may be built from buy and sellorders received from market participants for the auction. Referring tothe order book illustrated in FIG. 8A, buy orders are received frommarket participants “ABC”, “DEF”, “GHI” and “JKL” and sell orders arereceived from market participants “MLN”, “OPQ”, “RST”, “UVW” and “XYZ”,wherein a corresponding order size (designated by the label “Quantity”),an order time (designated by the label “order n°”) and an order price(designated by the labels “Bid” or “Ask”) are identified for ordersreceived from each of the foregoing market participants. Although anorder price is provided for in the order book, as illustrated in FIG.8A, it may only be used as a parameter for purposes of determining whichorders are to be excluded from the auction when compared to thereference price. For example, if the reference price is identified as$100.10 at the time of auction, the limit order price of $100.00associated with the buy order received from market participant “JKL” isidentified as ineligible and removed from the order book.

After ineligible orders are removed from the order book, the remainingorders in the order book may be sorted, at step 716. FIG. 8B illustratesthe order book of FIG. 8A, wherein the ineligible buy order from marketparticipant “JKL” has been removed from the order book and remainingorders from market participants “ABC”, “DEF” and “GHI” on the buy-sideand market participants “MLN”, “OPQ”, “RST”, “UVW” and “XYZ” on thesell-side are sorted by their size and time. In one embodiment, ordersmay be sorted first by their size and then secondarily by their time.

Once orders are sorted in the order book, method 700 may then proceed todetermine the minimum size that all eligible participants in the auctionwill receive. In order to do so, first the total number of sharesavailable on the buy-side and the total number of shares available onthe sell-side are calculated, at step 718, to identify which side hasthe lowest and which side has the highest total number of shares to bebought or sold. The side with the lowest total number of shares to bebought or sold is defined, at step 720, to be the “light-side” and theside with the highest total number of shares to be bought or sold isdefined, at step 722, to be the “heavy-side”. Referring to the orderbook illustrated in FIG. 8B, the total number of shares on the buy-sideis 370,000 and the total number of shares on the sell-side is 700,000.Accordingly, the buy-side is defined as the “light-side” and thesell-side is defined as the “heavy-side” in the present example.

Orders received from market participants associated with the light-sidewill be completely filled. While the number of orders that will befilled on the heavy-side, along with the number of shares that will bedistributed for each order qualified for a fill, must be calculated. Thetotal number of shares on the light-side may be used to calculate, atstep 724, the number of orders out of the total number of orders on theheavy-side that are eligible to receive a fill. The calculation, at step724, comprises dividing the total number of shares on the light-side bythe predefined MFS, wherein the value yielded by this computation iscompared to the actual number of orders on the heavy-side. Thereafter, adetermination is made, at step 726, whether the value yielded by theforegoing computation is greater than or equal to the actual number oforders on the heavy-side. In this particular example, the value yieldedby the foregoing computation (i.e., 370,000/20,000=18.5) is greater thanthe actual number of orders on the heavy-side (i.e., 5). Accordingly,all 5 orders identified on the heavy-side, as represented in the orderbook illustrated in FIG. 5B, will receive a fill.

After the number of orders qualified for a fill on the heavy-side isdetermined, the maximum execution size (IVIES) to be distributed perorder on the heavy-side may be calculated. In doing so, method 700 mayfirst identify, at step 728, the order-on the heavy-side with thesmallest order size. Referring to the order book illustrated in FIG. 8B,the order associated with market participant UVW has the smallest ordersize (i.e., 50,000) on the heavy-side. Thereafter, the MES may becalculated, at step 730, by dividing the total number of shares on thelight-side by the number of orders on the heavy-side qualified toreceive a fill, wherein the value yielded by this computation (i.e.,370,000/5=74,000) is compared to the smallest order size on theheavy-side (i.e., 50,000), as identified at step 728. The minimum ofthese two values, in this particular example 50,000, is selected as theIVIES and is distributed, at step 732, to each order on the heavy-side,as reflected in the order book illustrated in FIG. 8C.

Therefore, each of the 5 orders on the heavy-side eligible to receive afill receives 50,000 shares, thereby resulting in 250,000 sharesinitially being distributed. The remaining balance of shares (i.e.,370,000−250,000=120,000) may then be distributed proportionally, at step734, to orders on the heavy-side that have not yet been completelyfilled, as reflected in the order book illustrated in FIG. 8D. Forclarity, FIGS. 8C and 8D are order books illustrating, respectively, aninitial and final distribution of shares in accordance with method 700.

In the alternative, if the determination made, at step 726, confirmsthat the value yielded by the computation, at step 724, is less than theactual number of orders on the heavy-side, one or more orders on theheavy-side may be eliminated to match the number of orders permitted toreceive a fill. The difference between the value yielded by thecomputation and the number of orders on the heavy-side may beidentified, at step 727, so that the appropriate number of orders on theheavy-side is eliminated, at step 729. For example, if the value yieldedby the computation was 4, rather than 5 as in the previous example, thenone order on the heavy-side would have to be eliminated. The orderselected for elimination may be based on a size/time priority principal,wherein the order represented by the smallest order size and submittedlater in time is eliminated first.

After die appropriate number of orders on the heavy-side is eliminated,at step 729, the predefined MFS (i.e., 20,000) is distributed, at step731, to each of the remaining orders on the heavy-side. Therefore, eachof the 4 orders remaining on the heavy-side eligible to receive a fillreceives 20,000 shares, thereby resulting in 80,000 shares initiallybeing distributed. The remaining balance of shares (i.e.,370,000−80,000=290,000) may then be distributed proportionally, at step733, to orders on the heavy-side that have not yet been completelyfilled.

It should be noted that the sequence of operations described inconjunction with methods 200, 400, 600 and 700 may be different fromthat illustrated, respectively, in corresponding FIGS. 2A-2B, 4, 6 and7A-7C. For example, the operations at step 208 illustrated in method 200of FIGS. 2A-2B may be executed before the operation of step 204.Similarly, the operations at step 412 illustrated in method 400 of FIG.4 may be executed before the operation of step 408.

FIG. 9 illustrates a diagrammatic representation of a machine in theexemplary form of a computer system 900 within which a set ofinstructions, for causing the machine to perform any one or more of themethodologies discussed herein, may be executed. In alternativeembodiments, the machine may be connected (e.g., networked) to othermachines in a local area network (LAN), an intranet, an extranet, or theInternet. The machine may operate in the capacity of a server or aclient machine in a client-server network environment, or as a peermachine in a peer-to-peer (or distributed) network environment. Themachine may be a personal computer (PC), a tablet PC, a set-top box(STB), a personal digital assistant (PDA), a cellular telephone, a webappliance, a server, a network router, switch or bridge, or any machinecapable of executing a set of instructions (sequential or otherwise)that specify actions to be taken by that machine. Further, while only asingle machine is illustrated, the term “machine” shall also be taken toinclude any collection of machines that individually or jointly executea set (or multiple sets) of instructions to perform any one or more ofthe methodologies discussed herein.

The exemplary computer system 900 may be comprised of a processingdevice 902, a main memory 904 (e.g., read-only memory (ROM), flashmemory, dynamic random access memory (DRAM) (such as synchronous DRAM(SDRAM) or Rambus DRAM (RDRAM), etc.), a static memory 906 (e.g., flashmemory, static random access memory (SRAM), etc.), and a data storagedevice 918, which communicate with each other via a bus 930.

Processing device 902 represents one or more general-purpose processingdevices such as a microprocessor, central processing unit, or the like.More particularly, the processing device may be complex instruction setcomputing (CISC) microprocessor, reduced instruction set computer (RISC)microprocessor, very long instruction word (VLIW) microprocessor, orprocessor implementing other instruction sets, or processorsimplementing a combination of instruction sets. Processing device 902may also be one or more special-purpose processing devices such as anapplication specific integrated circuit (ASIC), a field programmablegate array (FPGA), a digital signal processor (DSP), network processor,or the like. Processing device 902 is configured to execute processinglogic 926 for performing the operations and steps discussed herein.

Computer system 900 may further include a network interface device 908.Computer system 900 also may include a video display unit 910 (e.g., aliquid crystal display (LCD) or a cathode ray tube (CRT)), analphanumeric input device 912 (e.g., a keyboard), a cursor controldevice 914 (e.g., a mouse), and a signal generation device 916 (e.g., aspeaker).

Data storage device 918 may include a machine-readable storage medium(or more specifically a computer-readable storage medium) 928 having oneor more sets of instructions (e.g., software 922) embodying any one ormore of the methodologies of functions described herein. For example,software 922 may store instructions to conduct an auction for blockorder trading. Software 922 may also reside, completely or at leastpartially, within main memory 904 and/or within processing device 902during execution thereof by computer system 900; main memory 904 andprocessing device 902 also constituting machine-readable storage media.Software 922 may further be transmitted or received over a network 920via network interface device 908.

Machine-readable storage medium 928 may also be used to storeinstructions to conduct an auction for block order trading. Whilemachine-readable storage medium 928 is shown in an exemplary embodimentto be a single medium, the term “machine-readable storage medium” shouldbe taken to include a single medium or multiple media (e.g., acentralized or distributed database, and/or associated caches andservers) that store the one or more sets of instructions. The term“machine-readable storage medium” shall also be taken to include anymedium that is capable of storing or encoding a set of instruction forexecution by the machine and that causes the machine to perform any oneor more of the methodologies of the present disclosure. The term“machine-readable storage medium” shalt accordingly be taken to include,but not be limited to, solid-state memories, and optical and magneticmedia.

Whereas many alterations and modifications of the present disclosurewill no doubt become apparent to a person of ordinary skill in the artafter having read the foregoing description, it is to be understood thatany particular embodiment described and shown by way of illustration isin no way intended to be considered limiting. Therefore, references todetails of various embodiments are not intended to limit the scope ofthe claims, which in themselves recite only those features regarded asthe disclosure.

The invention claimed is:
 1. A method comprising: initiating an onlineauction, the online auction having a duration that is unknown to marketparticipants; receiving one or more firm limit orders from one or morecomputer devices associated with the market participants; storing, in anorder book, a first portion of the one or more firm limit orders, thefirst portion received during the duration of the online auction;preventing storage, in the order book, of a second portion of the one ormore firm limit orders, the second portion received after the durationof the online auction; removing, from the order book, one or moreineligible firm limit orders from the first portion based on a referenceprice; and executing a remainder of the firm limit orders from the firstportion stored in the order book.
 2. The method of claim 1, wherein theone or more firm limit orders comprise a dark order, the dark order notbeing visible to a broader market.
 3. The method of claim 1, wherein theone or more ineligible firm limit orders have a price that is higherthan the reference price.
 4. The method of claim 1, wherein the one ormore ineligible firm limit orders have a price that is lower than thereference price.
 5. The method of claim 1, wherein the reference priceis calculated from market data received during the duration of theonline auction.
 6. The method of claim 1, wherein the online auction isinitiated at a pre-determined time that is unknown to the marketparticipants.
 7. The method of claim 1, further comprising: determining,by a randomized timer, a randomized time for the duration of the onlineauction.
 8. The method of claim 1, further comprising: transmitting anotification of the online auction to the one or more computer devices,the notification excluding information as to the duration of the onlineauction.
 9. The method of claim 1, further comprising: designating abuy-side or a sell-side as a light-side or a heavy-side in the onlineauction, wherein the buy-side or the sell-side with the lowest totalnumber of shares is defined as the light-side, and wherein the buy-sideor the sell-side with the highest total number of shares is defined asthe heavy-side.
 10. The method of claim 9, further comprising:calculating a maximum execution size, the maximum execution sizerepresentative of a number of shares to be distributed to each firmlimit order on the heavy-side.
 11. The method of claim 10, wherein thecalculation comprises comparing two values, a first value representativeof the smallest firm limit order size on the heavy-side and a secondvalue representative of a computational value yielded by dividing thetotal number of shares on the light-side by the number of firm limitorders on the heavy-side, the maximum execution size being a minimum ofthe first value and the second value.
 12. The method of claim 10,wherein a first distribution of shares is distributed to each firm limitorder on the heavy-side, each firm limit order on the heavy-sidereceiving the first distribution of shares equal to the maximumexecution size calculated.
 13. The method of claim 12, wherein a seconddistribution of shares is distributed to each firm limit order on theheavy-side that has not been completely filled, the second distributionrepresentative of a remaining balance of shares on the light-side afterthe first distribution of shares to each firm limit order on theheavy-side, the remaining balance of shares being distributedproportionally to each firm limit order on the heavy-side that has notbeen completely filled by the first distribution of shares.
 14. Themethod of claim 9, further comprising calculating a number of firm limitorders eligible to receive a fill on the heavy-side.
 15. The method ofclaim 14, wherein the calculation comprises comparing two values, afirst value representative of a number of firm limit orders on theheavy-side and a second value representative of a computational valueyielded by dividing the total number of shares on the light-side by aminimum fill size, the number of firm limit orders eligible to receive afill on the heavy-side being a minimum of the first value and the secondvalue.
 16. The method of claim 15, wherein one or more firm limit orderson the heavy-side are eliminated when the minimum of the first value andthe second value is less than the number of firm limit orders on theheavy-side.
 17. The method of claim 16, wherein a first distribution ofshares is distributed to each firm limit order remaining on theheavy-side after the one or more firm limit orders on the heavy-side iseliminated, each firm limit order remaining on the heavy-side receivingthe first distribution of shares equal to the minimum fill size.
 18. Themethod of claim 17, wherein a second distribution of shares isdistributed to each firm limit order remaining on the heavy-side thathas not been completely filled, the second distribution representativeof a remaining balance of shares on the light-side after the firstdistribution of shares to each firm limit order remaining on theheavy-side, the remaining balance of shares being distributedproportionally to each firm limit order remaining on the heavy-side thathas not been completely filled by the first distribution of shares.